On Freezing Depositor Funds at Financially Distressed Banks: An Experimental Analysis | Zendy

DAVIS DOUGLAS D. | Zendy; REILLY ROBERT J. | Zendy

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On Freezing Depositor Funds at Financially Distressed Banks: An Experimental Analysis

Author(s) -

DAVIS DOUGLAS D.,

REILLY ROBERT J.

Publication year - 2016

Publication title -

journal of money, credit and banking

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 1.763

H-Index - 108

eISSN - 1538-4616

pISSN - 0022-2879

DOI - 10.1111/jmcb.12324

Subject(s) - market liquidity , fragility , publicity , business , monetary economics , financial fragility , financial system , finance , economics , financial crisis , marketing , macroeconomics , chemistry

This article reports an experiment conducted to evaluate the effects of alterations in the terms of repayments to depositors following a liquidity suspension, as well as the effect of alterations in the publicity of information about withdrawal behavior on the fragility of distressed banks. Results indicate that a “tough” renegotiation stance of protecting depositors who maintain their money in the bank, can quite effectively promote stability. Information provided to depositors regarding past withdrawal behavior weakens the effectiveness of a tough renegotiation policy but reduces fragility somewhat for a more lenient rescheduling condition.

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